India: Now It is Their Turn for Possible Rate Hikes

Yes, India’s central bank did leave its short-term interest rates unchanged today (29 January 2010). However,it raised banks’ cash reserve requirements by a higher-than-expected 75 basis points. This is to be implemented in two phases and indicative of rising inflation.

“Though the inflationary pressures in the domestic economy stem predominantly from the supply side, the consolidating recovery increases the risks of these pressures spilling over into a wider inflationary process,” it said in its third quarter review.

The Reserve Bank of India (RBI) said the CRR would be increased by 50 basis points from Feb 13 and a further 25 basis points to 5.75 per cent from Feb 27.

It held its lending rate, or the repo rate, unchanged at 4.75 per cent and its reverse repo rate, at which it absorbs surplus cash from banks, unchanged at 3.25 per cent.

Despite increasing inflationary pressures, the central bank has been under pressure from senior government officials to hold off from raising its policy rates, which they argue would undermine the economic recovery.

The central bank lifted its wholesale price index inflation forecast for the end of the fiscal year in March to 8.5 per cent from its earlier forecast of 6.5 per cent, but said it expected inflation to moderate starting in July, assuming a normal monsoon and global oil prices holding at current levels.

It also lifted its forecast for GDP growth in the current year to 7.5 per cent, from an earlier target of 6 per cent, and said that the current rate of growth is likely to be sustained in the financial year that ends in March 2011.

The bank rate, used by banks to price long-term loans, remained unchanged at 6.0 per cent.

A Reuters poll last week showed 24 out of 25 economists expected the RBI to raise bank reserve requirements, or the cash reserve ratio, by up to 50 basis points.

Most economists had expected the central bank to keep core interest rates on hold, and Indian overnight indexed swap rates had ruled out a rate rise.

The cash reserve ratio was cut by 4 percentage points in five moves between October 2008 and January 2009 as the central bank moved to support the economy during the global financial crisis.

The RBI had cut the repo rate by 4.25 percentage points in six steps between October 2008 and April 2009. The reverse repo rate was cut by 2.75 percentage points in four steps since December 2008.

The RBI joins other central banks in Asia in taking steps to start unwinding ultra-loose monetary policy. Yesterday, the Philippines raised a short-term lending rate, and this month China started to tighten policy by raising banks’ reserve requirements and accepting higher yields at bill auctions.

Australia was the first Group of 20 country to begin raising rates as the global economy recovers from its worst downturn since the Great Depression. The Reserve Bank of Australia has raised its key cash rate by 75 basis points since October.

So it looks like growth is around the corner and fears of inflation have compel central banks to head off such pressures before they can bubble in.

The China Treasure Restaurant

We took the opportunity of patronising the halal Chinese restaurant called "China Treasures" for lunch today(29 January 2010).It is situated at the Sime Darby Convention Centre off Bukit Kiara.

We had our choice of timsum. Do not compare it with the traditional timsum that has pork ingredients in them. We had the usual harkou,the fried carrot cake with bean sprouts,fish balls,prawn fritters,chicken wings and some other dishes. We also ordered a dish of seafood noodle.

I guess the food was not too bad. Cost us RM128 with tax.

Will we go there again? Possibly.

Malaysia: The Razaleigh Rescue Mission

Tengku Razaleigh Hamzah has finally come out of his cocoon. Wearing a different hat this time around, he is now planning to lead a parliamentary caucus to press the Barisan Nasional leadership to honour the Petronas agreement.

He has insisted that Kelantan is entitled to a five per cent royalty for oil extracted off its waters, voicing out that it was about time to “re-examine the relationship between the states and the federal government”.

Tengku Razaleigh told a packed Stadium Sultan Mohamed IV that Petronas was bound by law to give the money to states where oil is found, adding Kelantan was not interested in compassionate payments.
Let us look at how he argues his case.

He reiterated that even as Kelantan is poor, it demands what is rightfully theirs.
The Kelantan government had demanded the oil royalty payment from Petronas last year, after the Federal Statistics Department revealed that Kelantan, together with Sabah and Terengganu, had contributed 62.5 per cent of the oil extracted in Malaysia. That put a spanner in the works.

The Federal government has insisted oil from the joint development area with Thailand was not from part of Kelantan’s waters and so offered RM20 million as “compassionate payment”.

But Razaleigh, the founding chairman of Petronas, disagreed with the government’s move, saying the formula for oil royalty was first agreed with Sarawak and later extended to all states.

“If Sarawak is due her five per cent royalty, no less is Kelantan, by the same principle,” thundered the Umno politician popularly known as Ku Li. He claimed that he has the blessings of the Kelantan palace to speak on the issue

Tengku Razaleigh clarified that the oil caucus he intends to lead is not just about oil. It is to re-examine the relationship between the states and the federal government.. He said the larger issue in the dispute was state rights as Malaysia was a federation of sovereign states that have assigned only certain rights to the federal government.

He wants a re-examination of the terms of the Federation Agreement signed in 1948 referring to the founding of Malaya before it gained independence from Great Britain in 1957.

He repeated his earlier argument that the Federal Government should respect the agreements made and not change them depending on who ruled the states, saying “How are we to ask investors to have confidence in us if we can’t even keep contracts between ourselves! More importantly there is a failure to understand the origin of federal powers over state resources”.

“We have forgotten that the states existed prior to the Federation. The Federation only exists because the states were willing to vest their rights in it, such as their rights in oil. Not the other way around,” he wrote in his blog.

Razaleigh highlighted that the federation itself rested on the principle of fairness to all the states, and to its citizens, wherever they may live. “When the government of the day ignores this principle, it is ignoring a basic principle holding our country together. There has been too much centralisation of power in the federal government. Powers functions and rights that belong to the states must be restored to them,” he added.

The move has a precedent in Terengganu after the 1999 general elections, when PAS won the state, prompting the federal government to convert oil royalty payments to compassionate payments managed by a federal department. Terengganu had sued for its right and Putrajaya relented only after Barisan Nasional recaptured the state.

Will Tengku Razaleigh finally come out and speak as the champion for the Kelantanese people? Let us wait and see his action plans.

J.D. Salinger Passes ON

J.D. Salinger, who wrote the American post-war literary classic “The Catcher in the Rye,” has died of natural causes aged 91.

“The Catcher in the Rye” was published in 1951. Its story of alienation and rebellion, featuring the teenage hero Holden Caulfield, immediately resonated with adolescent and young adult readers.

The novel’s first-person narrative shadows Caulfield through New York City in the days following his expulsion from a Pennsylvania prep school.

Generations of young people read the novel and embraced Caulfield, the phony-hating personification of teenage angst, as a proxy for their own experiences.


Many schools and libraries either banned the book due to its use of profanity and occasional scatological references or championed it for its portrayal of adolescence.

“Catcher” has been translated into the world’s major languages and sold more than 65 million copies. It is routinely listed among the best novels of the 20th century.

Alarmed by his sudden fame, Salinger has been a recluse since 1953, ferociously protecting his privacy in Cornish, a small town in northwest New Hampshire.

Besides “Catcher” he published only a few books and collections of short stories, including “9 Stories,” “Franny and Zooey,” “Raise High the Roofbeam, Carpenters” and “Seymour: An Introduction.”

Neighbours in Cornish rarely saw him and he never returned phone calls or letters from readers or admirers. Only rumours, infrequent sightings, and rare, brief interviews brought him to public attention.

He has not published a work since 1965 and the real-life Salinger would have been a disappointment to his most famous creation.

“What really knocks me out,” Caulfield said in “The Catcher in the Rye,” “is a book that, when you’re all done reading it, you wish the author that wrote it was a terrific friend of yours and you could call him up on the phone whenever you felt like it.”

In a rare interview with the New York Times in 1974, he said there was “marvellous peace” in not publishing.

“It’s peaceful. Still. Publishing is a terrible invasion of my privacy. I like to write. I love to write. But I write just for myself and my own pleasure,” he said.

Salinger often turned to the courts to help him guard his privacy. In 1982 he sued to halt the publication of a fictitious interview with a major magazine. In 2009, he sued to stop the US publication of a novel by Swedish writer Fredrik Colting that presents Holden Caulfield as an old man.

Jerome David Salinger was born on New Year’s Day in 1919 in New York to Sol Salinger, a cheese importer, and Marie Jillich. He attended three colleges but never graduated.

Salinger began writing magazine stories in 1940 before joining the Army during World War Two and seeing combat as part of the D-Day invasion and the Battle of the Bulge.

In her controversial 2001 biography “Dream Catcher,” Salinger’s daughter Margaret said her father was one of the first soldiers to arrive at a liberated concentration camp.

The book portrayed him as a self-centred wife-abuser who told his pregnant daughter to get an abortion because she “had no right to bring a child into this lousy world.”

Salinger married three times. The first was an eight-month marriage with a woman he had arrested in Europe for being a minor Nazi Party official.

Salinger met a young Radcliffe student, Claire Douglas, in New Hampshire in 1953. The pair married in 1954, and had two children, Margaret and Matthew. He and Claire divorced in 1966.

His third and surviving wife, Colleen, was a nurse who was some 40 years younger than him.

We bid farewell to one of the great Illuminati and literati of our age.

Malaysia: Possible Interest Rise

Yes, it was a period of suffering when Bank Negara Malaysia (BNM) did not allow interest rates to move up in tandem to combat inflation. And that was before the sub-prime era. When sub-prime choked global growth, BNM brought down interest rate even lower adding more injustice to the poor savers.

Last Thursday (21 January 2010),though it kept interest at the same level, BNM did indicate but not in so many words that the possibility for a interest hike is in the offing sometime this year. There are predictions that it will be a gradual process rising by 25 to 75 basis points before year-end. It is good that BNM has at long last signaled its readiness to normalise interest rates as a pre-emptive move to prevent the build-up of financial imbalances, said economists.

RAM's chief economist Dr Yeah Kim Leng opined that the central bank had signalled its discomfort over holding interest rate too low and for a long period of time.

“As exemplified by the US sub prime mortgage and housing market crisis, which some analysts attributed to overly low interest rates being stayed too long, loose monetary policies inevitably spawn over-leveraging, excessive risk-taking and asset bubbles,” he said.

At 2% currently, the OPR was lower than the average 2.5% to 2.8% seen in the year following the country’s most severe recession in 1998, he said.

“Depositors and savers are currently bearing the brunt of a low interest rate environment, which is aimed at spurring domestic demand,” he added.

With headline inflation or consumer price index turning positive in December, Yeah expected the upward adjustment to take place in the first quarter of this year, but the quantum would likely be gradual given that domestic demand was not expected to accelerate strongly as global economic recovery, especially growth in the advanced economies, remained sub-par and fragile.

“We expect a 25-basis point adjustment to bring the interest rate level to a more ‘normal’ level which we define as one that remains low and supportive of domestic financing and other economic activities,” he said.

However, he noted that the case for a 50-basis point hike was less compelling unless both domestic and external demand surged in the coming months.

“Nonetheless, a 50-basis point adjustment cannot be ruled out as a front-loaded measure to normalise the interest rate for the rest of the year,” he added.

Meanwhile, Malaysian Rating Corp Bhd economist Zahidi Alias noted that it was imperative that the quantum of any OPR hike take into consideration the growth of the economy relative to its potential output.

“One must bear in mind that at this juncture, policymakers might not be aggressive in hiking rates to ensure that the economy continues to pick up pace, and households do not become unduly burdened by heightened debt-repayment amounts,” he said.

Nevertheless, if the economy persistently expanded more than its potential rate which the International Monetary Fund estimated to be around 4.25%, interest rate hikes were likely to happen to prevent the economy from overheating, Zahidi added.

Maybank Investment Bank Bhd (Maybank IB) economist Suhaimi Illias said in a note Maybank IB was prompted to revise its OPR forecast to a 50 to 75-basis point hike compared with no change previously following Bank Negara’s latest indication.[Is this a false start or a smart move?]

“Still, the expected magnitude of increase in OPR this year is less than the 150-basis point cuts between November 2008 and February 2009. This should still keep the monetary policy stance accommodative to spur private sector demand (consumer and business spending) as the Government aims to trim its deficit spending, hence public sector demand, in the medium term starting next year, to RM40.5bil (5.6% of GDP) from RM51.1bil (7.4% of GDP) last year, and eventually to -3% of GDP by 2015,” he said.

Meanwhile, Kenanga Research said although the sudden change in the central bank’s tone would likely be interpreted as a signal that it may soon raise rates, the research house believed that it generally reflected Bank Negara’s genuine concern and way of managing market expectations.

“The current unsettling global financial environment as well as the modest recovery trend outweighs any inflationary concern or unchecked asset bubble at the moment. Hence, we expect the OPR to be raised incrementally from mid-2010, from 25 to 50 basis points to 2.5% by year-end,” it said.

OSK Research in a latest update concurred that Bank Negara would hold interest rates steady till June in its efforts to boost liquidity as the Malaysian economy was still finding its footing with third quarter GDP still contracting at 1.2% and unemployment coming in at 3.6%.

“However, we do not discount a potential hike in interest rate in the second half of 2010 as the economy gains traction and inflation exerts its influence.

“Even if there is a hike, we believe it would be on a gradual basis, for example by 25 basis points per policy meeting, to ensure the sustainability of economic recovery,” it added.

CIMB Research also expects interest rates to be raised at a measured pace, and possibly sooner than expected in the first half of the year.

It has revised its OPR target for the year to 2.5% from 2% for 2010.

“As this will still be lower than the historical OPR since 2004, the rate move will not have a significant impact on demand,” it said.

Is there early hope for prudent savers or is BNM still pally pally with business people for too long?